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The University of Tennessee had one of its busiest weeks on the Hill so far this session, as lawmakers in three legislative committees heard the proposed UT budget and questioned higher education leadership on a variety of topics.

President Joe DiPietro outlined for lawmakers the urgent situation faced by the UT System: A $377M forecasted budget gap over the next decade if no corrective action is taken. Without significantly increased state support, the University must find its own way of fixing its business model—by generating more revenue, finding efficiencies, and doing more with less—all while remaining of excellent quality and striving for improvements.

“We’re talking about modestly increasing our out-of state enrollments while maintaining our in-state enrollments,” DiPietro stated. Out-of-state students generally pay more in tuition, providing a needed source of revenue for UT schools in an era of struggling state appropriations for higher education.

At UT Knoxville, for example, an out-of-state student pays roughly $18,000 more than an in-state student. DiPietro has given the campuses discretion to increase their percentage of out-of-state students up to a boundary of 25 percent of total enrollments. The current average level for UT campuses is between 12 and 13 percent. National studies confirm that about half of out-of-state students end up staying in the state where they attend college and joining its workforce.

Overall, House lawmakers seemed pleased with DiPietro’s approach to re-evaluating UT’s business model. House Finance Committee Chairman Charles Sargent (R-Franklin) called it “a wake up call to all of us on the Committee,” adding, “if we don’t fund UT and the other schools, this is what happens. These are choices we’re going to have to make.”

The Governor told the press this week that he understands why UT is pursuing these options, citing the sharp decline in funding for public higher education over the years. “The state’s share of higher education’s funding has dropped from nearly 70 percent 20 years ago to about 30 percent [today]. And as the state’s share has declined, tuition and fees have sharply increased…I think they’re saying, ‘we have to make the economics work for us,’ he stated.

Senate lawmakers also seemed to approve of DiPietro’s approach. Senator Jim Tracy (R-Shelbyville) told DiPietro, “You kind of stole my thunder… I think we’re going to have to change the paradigm of higher education and you and your Board have started doing that…We’ve got to think outside the box… I think you’ve hit on something.”

The UT budget unanimously passed out of the Senate Education Committee and will next head to the Senate Finance Committee. So far, it appears there is a solid base of legislative support for the proposal.

The Governor’s FY16 budget proposal is certainly a strong one for higher education, but DiPietro has articulated that the strong proposal is no reason to hold off on being proactive in addressing UT’s “unsustainable” business model. ”We are not back where we were before the recession,” he said, further noting that there is no guarantee the proposed funding levels will continue in the future. ”We have to be ready,” he said.

Governor Bill Haslam delivered the State of the State Address tonight–the first of his second term as Governor. The yearly address is an important part of the legislative process, formalizing the Governor’s policy priorities and setting the tone for the next few months of legislative debate and action.

The Governor made clear that his focus will remain steadfast on education.

“I truly believe that getting education right is critical to the well-being of our state – today and in the future. We have to keep going full speed ahead. We can’t afford to go backwards. We’ve come too far to sell ourselves short. It would be an injustice to our students, to our teachers, to Tennessee families, and to ourselves,” Haslam said.

Notable higher education investments the Governor mentioned include:

$260 million for capital projects, including the land acquisition for the UT Institute for Agriculture’s 4-H Camp and Conference Center and a new science facility at the University of Tennessee, Knoxville,

$25 million to fully fund the Complete College Act formula; and

$10 million for need-based scholarships for students;

The Governor also spoke of specific workforce development investments geared to helping achieve the Drive to 55 Initiative. These include:

$2.5 million for statewide outreach efforts geared toward adult students, technical assistance to local communities that are finding ways to support adult learners, and a one-stop portal for adults;

$2.5 million to support the success of the SAILS (Seamless Alignment and Integrated Learning Support) program which addresses remediation in high school;

$1.5 million to provide last dollar scholarships to adults with some post-secondary credit to attend community college;

$1 million to establish competitive grants to 2-year and 4-year institutions to develop initiatives specifically designed for veterans; and

$400,000 to establish the Tennessee Promise Bridge Program, which will bring first-generation college students to campus prior to fall enrollment, which is one more step in making sure they have the best chance possible to succeed.

Other highlights of the budget include:

$48 million for state employee pay raises and compensation tied to performance and ongoing market adjustments; and

$36.5 million dollars for the Rainy Day Fund to bring it to $528 million.

We will send out a more detailed report on how the Governor’s budget proposal impacts UT’s budget priorities shortly.

Tonight, Governor Bill Haslam will address a joint session of the House and Senate in his annual State of the State address to kick off the first regular session of the 109th General Assembly.

The yearly address is an important part of the legislative process, formalizing Gov. Haslam’s policy priorities and setting the tone for the next few months of legislative debate and action. The governor has already indicated that, following the failure of Insure Tennessee, his main objective is to tackle issues surrounding the state’s educational system and K-12 educational standards.

The State of the State typically marks the official release of the Governor’s budget, which certainly will impact the University of Tennessee.

You can follow the address and session online at www.tn.gov/stateofthestate. The joint session is to convene at 5:45 p.m. CST with Governor Haslam’s address to follow at 6 p.m CST.

We’ll post an update focusing on higher education items included in the State of the State that impact the University of Tennessee as soon as possible.

UT President Joe DiPietro attended Governor Haslam’s budget hearing on Friday to advocate for the University’s top funding requests. The Governor’s budget hearings are an important first step in the State’s budget process, as the Governor weighs testimony from these hearings to develop a spending plan typically presented to the legislature in late January or early February.

The proposed spending plan is taken seriously by the legislature. Usually, very few major budget amendments are passed. In fact, the legislature did not pass a single substantive amendment modifying the Governor’s spending plan last year.

To put it frankly: Recent history suggests that if you want your major priorities to be funded, they typically need to be included in the Governor’s proposed spending plan. While any budget proposal will ultimately have to win the approval of the state legislature, the Governor’s budget hearings are a critical launch point to the budget process as entities compete for limited resources and other budgetary pressures begin to mount.

State funding for the University is essential. It represents about 25 percent of UT’s total budget, and despite the decreases in state funding that have occurred since the 2008 recession, UT has continued to increase its performance outcomes, graduating more students and producing more research.

But UT’s current business model, which relies heavily on tuition increases to offset dwindling state funding and fill a growing budget gap, is unsustainable as a long-term plan to continue providing affordable education to students and services to all Tennesseans.

The University is doing its part to address this budget gap through analysis that will result in recommendations to increase the efficiency, effectiveness and entrepreneurship of its campuses and institutes. Read more about the University’s funding and performance metrics here.

What are the major state funding priorities for the University of Tennessee in 2015?

Full allocation of funds based on campus performance.The state’s funding formula for higher education has recommended UT schools receive $9.7 million in new funding. President DiPietro is asking the governor to recommend that UT receive full allocation of this amount.

Why: UT has worked hard to make sure its institutions are the top performers in the state in order for the campuses to be awarded funding. Last year, the University was awarded 34 percent less than the formula recommended.

$7.3 million in additional funding for UT institutions that provide services to all Tennesseans. The funding would cover the Institute of Agriculture (UTIA), which has a presence in all 95 counties, Institute for Public Service (IPS) and Health Science Center (UTHSC).

Why: These institutions provide services that benefit all Tennesseans. In 2013, UTIA, IPS and UTHSC provided outreach to more than 6 million people. And unlike our campuses, these units do not have tuition mechanisms to increase funding.

Funding for the West Tennessee 4-H Center ($14.3 million) and Knoxville-Science Laboratory Facility ($83.7 million). The state’s higher education coordinating agency (THEC) has ranked both projects in the top six for funding by the state.

Why: Both projects are critical to moving the University forward. The West Tennessee 4-H Center would provide youth in west Tennessee with a camp experience in addition to serving as a conference center. The science laboratory will provide new facilities to educate students and produce groundbreaking research. The University has already raised matching funds for these projects.

Funding for building safety and maintenance.The University is requesting $53 million for 11 projects that will improve building safety and upgrade some existing facilities.

Why: These projects will ensure that our campuses are providing safe learning and work environments for our faculty, staff and students.

Salary increases for UT employees. President DiPietro is requesting, at a minimum, a cost-of-living salary adjustment.

Why: The University has a $150 million market gap in terms of employee pay that it is trying to close over time. As state employees, the University is asking the state to help fund increases for UT employees, as their work is critical to the state’s future. UT employees did not receive a cost-of-living adjustment in last year’s budget.

1. The Governor’s budget hearings are where the state budget process begins.The Governor’s budget hearings serve as a launch point for the State’s budgeting process. All state departments, agencies and entities, including the University of Tennessee System, will lay out their funding requests for the state’s next budget year—requests that the Governor will ultimately weigh as he compiles his 2015-2016 budget proposal. That proposal ultimately will be presented to the legislature in late January or early February and can be amended or passed into law in its proposed form.

2. The Governor’s budget proposal is taken seriously by the Legislature.In Tennessee’s recent history, the legislature typically has not made major modifications to the Governor’s proposed budget. In fact, last year the legislature did not pass a single substantive amendment modifying the Governor’s spending plan. The only amendments made were at the request of the Haslam Administration in light of dwindling state revenues. To put it frankly: Recent history and experience suggests that if you want your major priorities to be funded, they typically need to be included in the Governor’s proposed spending plan.

3. Last year’s revenue woes are likely to result in a conservatively crafted budget.
Tennessee’s last budget year closed with a $300 million revenue hole—a hole that may result in up to a 7 percent cut to state departments, agencies, and entities. In fact, at the Governor’s hearings, it is expected that each entity will detail what impact a 7 percent cut would have on its operation.

There is some good news in the state’s revenue numbers for the current fiscal year. General Fund revenue is roughly $91 million over projected levels at this point. But given last year’s mid-session revenue crisis where the Governor had to significantly alter his spending plan, we’re likely to see a more conservatively crafted budget to insulate against the possibility of revenues taking a turn for the worse.

4. There is mounting pressure from all sides.The Governor is facing mounting pressure on both sides of the budget equation—there is mounting pressure to further cut state taxes, which will in turn limit the state’s ability to fund existing services; and there also is mounting spending pressures behind various state services whose needs have been building for a number of years. For higher education specifically, these needs include, but are not limited to, adequate state funding for the day-to-day operations of campuses, funding to improve academic quality and services to students, to maintain existing buildings, and to address aging infrastructure and growth through the funding of needed new facilities.

5. Higher education’s budget hearing is on December 5 at 2:30 P.M. CST.You can tune in live to watch UT President Joe DiPietro lay out the University’s key priorities or check back here for coverage. To tune in live, click here.